Hurdle Rates for Overseas Projects

HANDBOOK OF FINANCE, Fabozzi, 2008

27 Pages Posted: 2 Jan 2007 Last revised: 12 Sep 2017

See all articles by Thomas J. O'Brien

Thomas J. O'Brien

University of Connecticut - Department of Finance

Date Written: December 19, 2012

Abstract

How should a multinational manager estimate the cost of capital for an overseas investment? We provide a guide, synthesizing various contributions in the literature, and considering both systematic risk and political risk. We use a country’s sovereign credit default swap rate to proxy for the country’s political risk premium. We also review the conversion of an international investment’s cost of capital between currencies.

Keywords: Overseas investment, operating beta, hurdle rate, cost of capital, country beta, political risk, sovereign credit default swap, foreign exchange, currency beta, beta unlevering

JEL Classification: G13, G32

Suggested Citation

O'Brien, Thomas J., Hurdle Rates for Overseas Projects (December 19, 2012). HANDBOOK OF FINANCE, Fabozzi, 2008. Available at SSRN: https://ssrn.com/abstract=954550

Thomas J. O'Brien (Contact Author)

University of Connecticut - Department of Finance ( email )

School of Business
2100 Hillside Road
Storrs, CT 06269
United States
860-486-3041 (Phone)
860-486-0634 (Fax)

HOME PAGE: http://www.business.uconn.edu/staff.asp?id=57

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